It is Hard to Resist the Dopamine of Collective Euphoria in the Housing Market

Individual investor results may vary.

By Kara Cox, real estate investor, agent. Observer of Bay Area Real Estate on San Mateo Parley.

Having lived both in the Bay Area during the dotcom explosion and NYC during the MBS explosion, I know a thing or two about financial bubbles. Or at least how they feel in the moment: akin to being at a frat party at 2 am. Everyone is spewing garbage but thinks they are a genius, and the only way to make sense of it all is to drink up or take yourself home.

That’s bubbles.

It is hard to resist the dopamine of collective euphoria. It is only in retrospect in which everyone saw it coming, knew it couldn’t last, etc. We didn’t, for the most part. It is easy to look back with derision about the Dutch and their bout with overpriced tulips, but is that so much different than what happened with Or when folks rushed to own homes in 2005?

Data presented on the major realty sites tends to focus on the gains of the last ten years, more or less. This is handy to their purpose…making a home seem like a great investment, on top of providing other practical and emotional benefits. The last ten years have been great!

However, to fully reap those financial rewards you would have had to buy around 2010, and this was precisely the moment lending was in shambles.

For example, a friend of mine bought a place in San Mateo in late 2010 (3/2, approx. 1300 sq. ft., slightly oversized lot) for a little under 650K. According to it has gone up in value 135% in the last 11 years, and will go up an additional 9% over the next year. She said, at the time, they worried they were overpaying. Despite such potential gains, her non-tech propelled family isn’t going anywhere, short of winning the lottery.

With prices soaring and a constant stream of reasons why prices can’t possibly go down, I start to get nervous. It’s not that I don’t think there is a lot of value in a home in San Mateo. It’s that I can’t shake the feeling there are a lot of outliers in the data which are disguising the facts the overall gains are being distributed in far less democratic manner than they might seem with additional context.

For example, there is an adorable comp on the market in San Mateo which came up pending in the standard two weeks or less (2/2, approx. 1650 sq. ft., oversized lot). The ask price is around $1,200 per sq. ft., for a list of 2 million.

Estimates of the property’s value:

  • Redfin = $2,274,831
  • Collateral Analytics = $2,445,000
  • CoreLogic = $2,420,700
  • Quantarium = $2,328,339
  • Zillow = $2,305,555

What is of special interest to me about the comp however is its past sale history. In the summer of 2005, it sold for $1.4 million. It next sold in 2013 for $1.41 million.

It took eight years to recoup the sticker price, to say nothing of the losses of interest, commission and other ownership obligations. Should the house sell for the low side of the projection, $2.3 million, it would be easy to tout this as a miraculous achievement. Having bought in 2013 for $1.41 million, you sell for $2.3 million. Minus the commission only (4.5%) you are walking with approximately $800K.

Assuming you put the standard 20% down this is 285% return on your money over 8 years. Not bad, on paper, but it goes down significantly when you start stripping out other ownership costs.

Then, keep in mind, if you do the math for the guy who bought and held in 2005, had he continued to hold, the return on the property is sliced in half. As it was, he lost a great deal of money. Such are the numbers showing how long it took for a top-notch trophy property located in San Mateo to rebound after the last dip.

I came across another property which tells a story of much greater financial woe and heartache stemming from that period which, for a while, burst with enthusiasm. This one is located in the outskirts of Hayward. Way, way out…I passed a yak.

The house was built in 2003 (4/3, approx. 2700 sq. ft., large lot with Bay view). Its stats are as follow:

  • Early 2003 – sold for a hair over $800K
  • Mid 2005 – sold for $1.19 million
  • Late summer 2012 – sold for a hair under $700K
  • Current estimate on Realtor – a hair over $1.4

Realtor points out that the house has appreciated 90% over the last 11 years. However, the bulk of this benefit goes to the most recent buyer. The previous one lost $500K of value between the years of 2005 and 2012. Let’s assume the sale price estimate is correct. If you calculate the return of the asset itself over the span of its first sale and today the overall return looks, to me, a lot more like 75% over the last 18 years. Individual investor results may vary. By Kara Cox.

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  126 comments for “It is Hard to Resist the Dopamine of Collective Euphoria in the Housing Market

  1. Turtle says:

    The FOMO is strong in this one.

    • rich says:

      A good friend of mine bought a flipper a year ago for 50k, in what just four years ago was considered the “hood”. He just sold it (under 1,900 sf) for 450K. He had three full price offers, and one of them was cash. The out of state buyers first saw it the day it closed. Feel free to look it up on zillow.

      4 bd3 ba1,871 sqft
      209 Northern Blvd, Wilmington, NC 28401

       5/14/2021Pending sale$450,000$241/sf  


    • Tom Stone says:

      Turtle, the numbers are right.
      Lesson # 1 is buy at the right time.
      If you buy in within 10-15% of the bottom you will do well, on the way up or the way down.
      If you buy within 10-15% of the top you are buying an education as well as a home.

  2. Kielbasa says:

    “…I passed a yak.”

    That could be serious. You should see a doctor.

  3. RightNYer says:

    Great post, and illustrates what I call the opposite of “throwing good money after bad.”

    Whatever gains have happened have happened. They’re completely irrelevant. The only question, for someone trying to buy TODAY, whether it’s a share of stock or a house, is whether there are expected to be gains GOING FORWARD.

    Yes, in retrospect, someone who bought Bitcoin at $4k made a great investment, even if he cashes out today. Obviously, he would have made an even better investment had he cashed out a few weeks ago at $63k.

    But anyone who went all in at $63k got hosed. Wealth has to be created. It can’t be printed. And SOMEONE will be left holding the bag when this bubble implodes.

    • Depth Charge says:

      All of the people who bought BitCON above today’s price, are not happy. That is A LOT of people since it’s almost cut in half at this point. Every person who gets burned is one less person interested in BitCON going forward. They are running out of greater fools.

      • RightNYer says:

        I really don’t understand Bitcoin. It’s pure gambling. If I wanted to gamble, I’d rather go play Blackjack or bet on some horses. It’s a lot more fun.

        • Anthony A. says:

          You can do this type of gambling without leaving home and not having to mess with the crowds in Vegas. You can also get a Twitter account and chat with the BC fanbois and feel important. Kind of like rubbing elbows with Elon without ordering a Tesla.

        • polecat says:

          Oh C’mon! … EVERYBODY, it seems .. wants to take a big virtuous bite from a Mu$kmelon.

    • Andy the Car says:

      >>Anyone who went all-in at $63K got hosed.<<

      Only for a while or only if they sell…Though the numbers are higher for this cycle, we've been here before with Bitcoin. The thing about crypto is that it bubbles and crashes on a pretty regular basis. If you get caught buying at the top, you just have to wait it out. I once got trapped in a trade with a coin for months (not a pump and dumper, this was when we had the last crash and everything sank). I had to wait, but the coin finally made it back to where I bought it and went higher, leaving me with profit.

      The question on the minds of crypto traders ATM is whether or not we reached capitulation at the recent lows or if we still have further to fall before we can begin anew.

  4. Near the bubble peak in HB1 my neighbors put their Ca house on the market for 1M. It was the nicest house on the street at the time. The couple were smart business people who smelled a rat. They dropped the price overnight to 650 and sold as is, just in time. Buyer had it for about six months, and was pushed out when the mortgage went underwater. By then the property is valued in the 400s. The market freezes up, and they go into foreclosure. Family buys it for 250K at auction. The house is falling apart by now. They live in it for a year, then rent it to a family of hispanic gardeners. They fill in the swimming pool. The yard is dust. The long driveway is crumbling blacktop. The house is no where near peak value, which was admittedly overvalued, and it would take a couple hundred thousand to get it back. In that case it would probably be worth close to 1M again, and have better amenities. So I think the housing market has a lot more to go to get back to HB1 and even do a little more, which you would expect in a growing and healthy economy. One of my neighbors just replaced a very expensive tile roof. Everyone else was asking the same question, why? Replace it with composite, you sleep just as well at night. So in some ways we are still in that HB1 housing recession, and homeowners are a bit shy about taking on the sort of improvements that would begin to even suggest another bubble and those neighbors who maintain above average accomodations, seem out of place.

    • Seneca's cliff says:

      Around here the big problem is those fake tile roofs ( made out of some sort of composite that sometimes includes asbestos. These were often installed on the mediterranean style homes in the 1990’s. They often go along with fake stucco (Dryvit). These tile style composite roofs are a nightmare in that in our area in that before a roofing job is allowed to go forward ( control point is disposal and dumpsters) you have to submit a sample of the roof tile to a lab. If it contains asbestos all the torn off shingles have to be disposed off in a hazardous materials dump site 300 miles away for big bucks. The cost of such a reroof is huge. Combine that with failed dryvit siding (causes mold and dryrot in our climate) and the house could be effectively worthless. There are a lot of owners of such things around her that have been very thankful for the remote ( bid up and buy sight unseen) buyers during the flu. This will be a disaster for many though. There was a nice looking mediterranean on a little lake here that was on the market for years with both these problems, could never sell. The owner finally bit the bullet and replaced the tiles with comp and the fake stucco with plank siding. This was expensive I assume, but even worse the style of the house really required the look of these Faux materials. With a comp roof and plank siding it looks like a goat barn. No one wants it now either.

      • nodecentrepublicansleft says:

        Don’t forget the Chinese drywall! That was a big problem in FL.

        I met a couple who was looking to rent about a decade ago. They were fleeing a home they purchased w/the poison drywall.

        They said whatever chemicals were in it made them ill and was so caustic it could damage metal.

        As with all things in life: Due Diligence


        BBB (Been Burned Before)

    • interesting says:

      “bubble peak in HB1”

      What I find interesting is calling last time housing bubble #1.

      This is the 4th one since I’ve been in California.

  5. Micheal Engel says:

    China first : H10N3 infection. The chance of pandemic is low.

  6. timbers says:

    So, I know “this time is different” is derided around here yet some things are different and they affect price of homes and assets differently this time.

    1). This time the Fed is using it’s tools (money printing) quicker and longer and bigger. In the past, it was more limited and of shorter duration. Now, it’s broader and at the same time more targeted, and longer and bigger.

    2). The more targeted part is, the new tools the Fed has acquired around 2008 allows it to target mostly wealthy and asset holders as opposed to the general consumer of goods folks. One affect of this, is that some inflation reports come in unrealistically low which allows the Fed even more room to cherry pick it’s data and targets.

    How long can the Fed do this w/o things blowing up? 3 years? 5 years, or 10?

    • RightNYer says:

      Yes, and the criticism of the Fed is becoming more and more mainstream. A lot of ordinary people are waking up to what is happening, including in Congress, and they don’t like it.

      All it would take is for a bipartisan agreement to rein in the powers of the Fed, and the Fed, seeing the writing on the wall, to change course, to cause asset prices to plummet.

      I’m not saying it’ll happen soon, or at all, but that’s the precarious situation we’re in right now.

      • andy says:

        Congress is waking up.. Bipartisan..

        Thanks for the laugh.

        Our octogenarians wake up just enough to pass the next Trillion dollar bill.

        • RightNYer says:

          Yes, and the young people for whom the Democrats spend a ton of time courting can’t afford houses.

          The fact that people like AOC and the other progressives aren’t immediately dismissed as kooks shows that a big shift is happening.

          You’re not going to get a warning when the blowback occurs.

        • MCH says:


          You know, sometime in the mid 60s (1960s that is), there were a bunch of bright young people from (what are known today as top notch universities) places like Tsinghua and such, walked out of their classrooms to go on a crusade to join the wonderful red guards. Thanks to the wonderful indoctrination at the time, they closed down the schools and became a bunch of self-righteous, holier than thou pricks.

          Fast forward 50 years, and it seems that the young people in the US are finally catching up to their peers in China. 50 years later, but better late than never to start up the revolution. To borrow a phrase from Mr. Maher, does anyone wonder why ” advertisers in this country love the 18-34 demographic… because it’s the most gullible.”

          It just goes to show you, indoctrination works, you just have to work at it long enough. Just like if a zombie only infects a single person an hour, at the end of the month, you’d have whole swath of zombies.

      • Cas127 says:

        “and they don’t like it.”

        Regardless of your political perspective on 1/6, I have the distinct impression that those photos of people literally scaling the walls of the Capitol are going to become iconic…of DC’s Idiot Age when habitual policy failures pushed increasing numbers of citizens over the edge.

      • Old School says:

        It’s clear that Fed Zirp and QE has inflated housing once again. Housing really should not have the roller coaster ride we have had the last 25 years.

        Society is not better off with people placing million dollar bets on housing using 4:1, 10:1 or even 35:1 leverage on housing. It does a lot of damage when things unwind.

        • Cas127 says:

          Smart to point out the insane levels of leverage that DC is okay with (actively encourages) so long as the sticker “building” is slapped on.

          The other amazing thing is DC’s utter, utter inability to learn from its ruinous mistakes, even when the consequences are fresh in everyone’s memory.

  7. Phoneix_Ikki says:

    It’s a bubble alright and I think most people realize that but what I struggle with lately is that even if people are fully aware of the bubble and the insanity behind the spike in prices for almost all assets, they also know that the almighty financial GOD (a.k.a Weimar Powell and the FED) will not let any price discovery or revert to the means to happen at all cost and they have all the firepower and will to make it happen. In an environment like that, even if it’s a bubble, a good argument can be made that bubble is the new normal and you won’t win betting against GOD.

    I know this is very much in line with the “this time is different” talking point but the swift reaction march of last year by them do leave me with some doubts if we’re still holding on to old yard stick of measuring when in new reality there’s only one measuring yardstick that will shape the outcome, a big one carry by the FED with plenty of government backing. Seems like all conventional rules have been thrown out the window and to expect a bust based on conventional rules or principle might be misleading in this new environment.

    Case in point, most of the points I hear about how housing and stock can unwind if interest rate do tick up, that’s a big IF assumption. What I haven’t heard, perhaps due to my own lack of knowledge is a convincing case that a major price correction in housing even if interest rate remains steady or even lower. Perhaps the pending foreclosure and people holding on to 2nd home might be a catalyst to bring on the bust but then again banks can artificially control foreclose homes from appearing on the market in order to control the pricing narrative. I don’t know, as disappointed as it is to say, I am struggle to envision the next black swan event that will sink housing and all I really want is a freaking decent house to raise my family without leveraging to the moon to pay for a crapbox and then having to pet myself on the back and convince myself that I made the right decision or overpaying.

    • YuShan says:

      The simple answer is that it will go on for as long as people believe it will go on, even though most people do understand that it cannot go on forever.

      What will finally break that confidence is impossible to predict, but it is likely to be something that is not prominently on people’s radar at this moment. Then the dominoes start to fall and the central bank won’t have an answer. The house of cards collapses under it’s own weight.

      • John Galt says:


        Your comment strikes an important nerve. One thing that people rarely ever equate with markets anymore is buyer and seller sentiment. NOTHING moves markets like fear and panic, and through all of our technology and beautiful charts(thanks to Wolf and the contributing writers here) we often see the most powerful mover of markets forgotten about. Until it’s too late. Make no mistake though, it WILL happen, we just don’t know when.

        • Angel says:

          Agreed. The data can’t deal well with sentiment and yet it’s a huge player that is constantly forgotten or disregarded. Right now, there are a huge number of white swans but the changing sentiment and/or everyday realities maybe more than enough to crash the whole thing.

      • Heinz says:

        “What will finally break that confidence is impossible to predict, but it is likely to be something that is not prominently on people’s radar at this moment.”

        The Everything Bubble IS a big confidence game, with Fed as biggest con artist of all time.

        But never overlook the blind will and intelligence level of general public. As George Carlin was attributed in saying:

        “Never underestimate the power of stupid people in large groups.” — Substitute ‘real estate buyers’ for ‘stupid people’.

      • Phoneix_Ikki says:

        Yup, agree with this, there’s a reason it’s call black swan event. Sentiment and narrative do drive the market probably way more so than any fundamentals at least for the majority of the investing and home owning population.

        With my critical thinking cap on, just trying to deduct what almighty force can ever shift this housing will go up forever straight line sentiment from shifting and swinging to the extreme other end of the spectrum. The safety net that the FED has provided and continue to support at all cause might just shift the ever changing sentiment possibility to a brainwashing cult like belief. Let’s just say once you’re in a cult, that line of thinking will either not shift at all ever or take so long might as well be forever.

        Not to mention, to most people if it doesn’t directly show up in uncontrollable and on going double digit inflation in the way they can feel and have enough will power to protest against, there’s no difference between a $3T balance sheet vs $10T balance sheet. In fact most will probably feel good that there $200K crapshack is now worth $1.5M because of wealth effect.

      • Robert Hughes says:

        A specific case in point, like the frog in boiling water. San Diego, mission valley area. City is allowing tens of thousands of condos and fancy apts to be build in an already over crowded area, with zero infrastructure improvements to roads and access. Their supposed wisdom, oh people will use the rapid transit system.

        Quality of life in SD has already vastly declined in last 10 years due to over development. Not even considering decline over last 20 or 30. What happens when at some point alot of younger renters or buyers of 700 or 900 sq ft apts, condos say screw it. Sentiment as they move in herds. Let’s go to the next hip town or place. Since price is determined on the margin if even a relative small number try to get out the door at the same time, look out below.

        Since I know SD so well, born there, moved, came back, moved, still own rentals there i see it as a perfect specimen to keep track of for the changing real estate landscape. At present single family houses, closer in, pretty safe at even nose bleed levels. Condos I would be very wary of any purchase. Apt buildings unless one has very very deep pockets and it is an A+ product, buyer beware.

    • Up North says:

      This is well said.

    • rich says:

      “Case in point, most of the points I hear about how housing and stock can unwind if interest rate do tick up”

      History tells us something else. Look at a Dow Jones chart from 1970 to 1980, a period of the worst inflation in my lifetime. The stock market tanked for most of those ten years as interest rates went up. Then look at an historical house chart for those ten years. By 1980, Fanny mortgage rates crested at over 16%, but house prices doubled over that same ten year period. In other words, record high rates couldn’t stop median house prices from doubling.

      Now look at the present. 50% of single family house buyers are recorded as paying cash. Higher rates will have little effect on them. We’ve just got too much money chasing too few single family houses. For that to change, there needs to be a lot less money to buy and a lot more inventory on the market.

      • Doug says:

        Great point about too much money and lack of inventory. In many respects, the housing “bubble” is a pure supply and demand phenomenon – too much demand, far too little supply. And as basic economic principles dictate, prices will rise until am equilibrium. With such limited supply, that equilibrium is going to be high. In my city of Phoenix we have a 2 week supply right now…when “normal” supply is roughly 10 times that.

        This is VERY different than 2008. In fact, I can’t recall a time in modern history where the real estate market was anything similar to this one.

        • nodecentrepublicansleft says:

          It’s been pointed out:

          1) People who want to sell but won’t out of fear they can’t get a reasonably priced replacement;

          2) Foreclosures have been held off the market;

          3) Inventory has been going up the last 3 weeks.

          4) Free covid $ is ending soon

          5) Evictions are going to break loose too.

          I believe the foreclosures start dropping in the next month or so. What’s happening now isn’t going to last….

    • David G LA says:

      Exactly. Banks are postponing the day of reckoning. I believe they are allowed to end the COVID forbearance programs in June – but Chase, WF and BA are not showing their hand, and many have announced they will let the programs run until 2022. I wonder why?

    • Seen it all before, Bob says:

      I have used my current moniker, “Seen it all before, Bob” for at least 5 years on various blogs.

      After experiencing 2020, when during a major pandemic that shut down the world economy, but caused housing, equities, and made-up currencies to explode in value, I have decided I have never seen anything like it before.

      If I truly had seen it all before, I would have shorted the entire market and sold my house in preparation for the crash.

      Starting tomorrow, I will now rename myself to “I have never seen anything like it, Bob” or “You ain’t seen nothing yet, Bob”

      The money god Plutus rains cash on us all, while Zeus throws lightning bolts down on the unbelievers from their thrones in DC while telling Bacchus to hold their beers.

      These gods are a powerful lot, and I don’t think they are close to running out of money or lightning bolts.

      You ain’t seen nothing yet,


    • Nathan Dumbrowski says:

      Both Tesla stock and BTC have dropped by one third of their peak price. The ATH is in their tail mirror. We can hope the same will happen to these ATH home values for anybody wanting to get into the market. That might also spook some of these multi-property owners that the top will come down at some point

    • Anthony says:


      “I don’t know, as disappointed as it is to say, I am struggle to envision the next black swan event that will sink housing”

      That’s why they are called black swan events….people rarely see them coming. In fact, from classic economics, if you can’t see a black swan turning up. you can bet it’s because the crafty swan is stood behind you….ready to tap you on your shoulder…

  8. Trailer Trash says:

    When did people first start thinking that their house should increase in price every year simply because their house exists?

    As Kara Cox points out, buildings and improvements actually depreciate and need constant maintenance. That is a *reduction* in value, not an increase brought about by some kinda invisible force.

    It seems like people expect the price of all assets to constantly increase through time (except for cash). That seems like magical thinking. Or maybe better described as a con.

    • Motorcycle Guy says:

      Trailer Trash,

      I think you need a new “handle” because that is a very wise comment.

    • Heinz says:

      “When did people first start thinking that their house should increase in price every year simply because their house exists?”

      That happened when houses were no longer considered a consumer consumption (basic shelter) and started being viewed as a speculative investment. Not sure the time period but it must have been around 1970s-80s.

      The idea that a piece of lumber or poured concrete after decades of wear and tear is now worth many multiples in value is kind of crazy.

      • rich says:

        On average, U.S. house prices have increased every decade for the last 80 years. As the value of the dollar goes down, house prices go up. In other words, for the last 80 years, the single family house has been a hedge against inflation and dollar devaluation.

        • Wolf Richter says:

          Yes, if you own it for 80 years. The average homeownership period is something like 11 years. Which produces the exact problems outlined in the article.

        • Heinz says:

          On average, historically house prices have just kept up with average rate of inflation. In other words, treading water. Today’s bubble prices are an outlier.

          Another way of looking at house prices over time is actual inflation adjusted prices delta (and it of course results depends on where you start and end your price tracking).

          Let’s look at inflation adjusted median house prices in 1/1/1953 and compare that to infl-adjusted median house prices in 1/1/83 — thirty years.

          1/1/53 $177,046.53

          1/1/83 $166,215.06

          When you factor in housing carrying costs which include taxes and fees, maintenance, and insurance houses are actually behind the 8 ball and not a great hedge against inflation.

        • Swamp Creature says:

          And what good does that inflation in housing prices do for you. Higher taxes and maintenance. Unless you’re an investor and house flipper, it does you no good. Just a number on a piece of paper. The lemmings think they are better off when they’ve got nothing. A house is just a place to live in and a roof over your head.

    • Nostradamus Reloaded says:

      In the Weimaran Republic, the people had run out of assets to put their devaluing cash in, so they bought things like Pianos as preserve of value.

      My 20 year old car doubled in local listing prices last year and doubled again this year. There is a shortage of rolex and silver coins. Made up money is what everybody talks about investing in, or already has.

      I don’t think we are anywhere close to the end of this story. What we are much closer to is a disorderly end of this story.

  9. andy says:

    So in the example above the realtor gets $100K commission (4.5%), whether the owner made or lost money.
    Never dealt with a realtor. What is it they do again?

    • FSBO says:

      Recall that study from a few years back about how the realty person’s own houses stay on the market longer than their client houses.

      They hold out for more instead of pushing for that quicker close to get their hands on the commission. They still get a big enough check, move onto the next client to churn, since time is money, and each seller leaves money on the table. The buyers may appreciate that lower price and so engage that realty person again, with another rinse and repeat.

    • Lisa says:

      I’ve been wondering the same thing. I’ve been through 3 realtors and can’t understand why they get paid so much

      • Frank says:

        What get me with realtors is that in hot markets, their job is easier and they make more money, while in a declining market they make slightly less money for arguably more effort. Either way, the commission is way to high, especially for higher end homes. The effort to sell a $200K home is not significantly different than that required to sell a $1M home…. The commission rate should go down as the price goes up.

      • nodecentrepublicansleft says:

        I paid $75 to list my last home on the MLA and included a $10K fee to any realtor who sold it. I saved $15K.

        If I had a crystal ball and knew the market would go nuts, I probably wouldn’t have even needed a realtor.

        Sold another home w/out a realtor last year. A good one is helpful, many suck terribly.

    • LessonIsNeverTry says:

      They provide a minor benefit for an exorbitant cost, relative to skill, by preying on people’s fear of the unknown when buying/selling what is most households largest single (leveraged!) investment.

      I’m not a fan but, like big weddings, this has a ton of cultural inertia.

  10. jrmcdowell says:

    Having lived both in the Bay Area during the dotcom explosion and NYC during the MBS explosion, I know a thing or two about financial bubbles.

    Good article. The Fed Funds Rate rose to over 6% to help end the dotcom frenzy and over 5% to assist with pricking the housing bubble. Now, the FFR is zero and the ten-year treasury is well below the (understated) rate of inflation while the Fed is printing $40B per month to buy mortgage-backed securities.

    Nobody can predict the timing and future of the housing market as there are too many unpredictable and aleatory factors involved. But one thing is for sure: the Fed seems quite resolved to throw the largest frat party in history and first-time home buyers are paying a huge entrance fee to partake in the bash.

    • YuShan says:

      “But one thing is for sure: the Fed seems quite resolved to throw the largest frat party in history”

      But when they get to the point where they have to choose between crashing the market or completely trashing the dollar, they will preserve the dollar. Otherwise they will lose all their power.

      • jrmcdowell says:

        In many areas, the dollar is already being trashed for first-time home buyers and yet they proceed with the MBS purchases.

      • MCH says:

        just wait for the Soros/Drunkenmiller equivalent to try and break the dollar. After all, no one thought it was possible to do it to the pound.

        But a good hedge fund manager can find all of the inefficiencies.

  11. Anthony A. says:

    Those house prices in Ca are obnoxious. Anyone who pays $2 Mil for a small bungalow is asking for trouble later down the road. I could be wrong, especially if Ca decides to print (and value) their own currency at some point in the future.

    Full disclosure: I have relatives in Ca that have been there over 50 years and they seem sane to me, but I rarely see them anymore so I am assuming status quo.

    On another note: In 2010, I bought a 2,000 square foot brick and Hardiplank home in Spring, Texas that was built between 2003 and 2007 (search Augusta Pines or Coventry II). And it’s in a very desirable neighborhood. I paid $122,000 for it, and paid cash. The house next door, similar size, sold a few months ago for $262,000 and it was in beautiful condition.

    On a smaller scale, we are doing about the same as the RE market in California. But we are using Texas money (LOL).

    • 2banana says:


      “I could be wrong, especially if Ca decides to print (and value) their own currency at some point in the future.”

    • Motorcycle Guy says:

      Anthony A.

      Thank you for the very interesting comments.

    • Jeff says:

      I find $2 million for a little bungalow in San Mateo to be more sensible than all of the homes in my state of Montana going for $1 million. There are a lot of high paying jobs and wealth-creating companies all along the peninsula. MT has very little of either, folks are bringing money they made elsewhere here.
      If a couple are each making $200k and have $500k in stock options, that $2M price point is no problem at today’s low rates.

    • Swamp Creature says:

      Anthony A.

      The value of those houses didn’t go up. The value of the dollar used to purchase them just went down.

  12. TheFalcon says:

    Surely it’s not even necessary to raise the point of the terrible decisions that people make when driven by their emotions. The two categories where humans routinely blow themselves up are poor financial decisions and poor decisions on who they enter into a romantic relationship with. Because their emotions are driving the bus. Then they rationalize their emotional decisions in their heads.

    I suggest you have to be at least 50 yrs old to have fully appreciated the combo of bubble/bust, RE bubble/bust and stock market bubble/bust, and current RE and stock market bubbles. If you want to add the late 80’s RE runup, Black Monday ’87, and 1990’s recession and RE value decline, I suggest you need to be in your 70’s. To have also appreciated the 1970’s hyperinflation and recession and fallout, you would have to be in your 80’s now.

    I predict there will be a large number of the 30 to 45 yr old crowd who are presently feeling pretty smart who are eventually going to get humbled. Not to discriminate, there will be those in the over 50 crowd who suffer from long-term memory loss who will be receiving a reminder of how things can turn bad. Of how the tip of their index finger does not morph everything it touches into 24 carat gold.

    • Anthony A. says:

      I’m 77 now and have lived (and prospered) through it all what you mentioned. And you know what…..almost all of the people in my age group that I know of have done the same as me. Especially now are we being very careful with money and assets.

      The younger folks? Not so much, and they probably will have some expensive scars when this ends. Even at RE prices around here at 10X less than Ca, they are overbidding asking prices.

    • Trailer Trash says:

      The Falcon’s list should also include the savings & loan banking industry scandal of the 1980s and ’90s. More than a thousand S&L associations went belly up.

      The Fed helped trigger the crisis by raising the discount rate to 12%. Like we have seen with so many other financial disasters, the S&L’s borrowed short-term to fund long-term loans. Wide spread fraud throughout the industry made things worse.

      It only cost taxpayers $130 billion; small change by today’s standards.

    • Robert Hughes says:

      Now in 70’s. Couldn’t agree more. Watching from the sidelines and enjoying. Opportunity seems to await.

  13. Ridgetop says:

    Somewhat related, I heard that Starbucks closed down 45 stores in San Francisco during the pandemic, but are planning on opening up only about 15 stores.

    Starbucks recently spent $2 million dollars on the Starbucks in the Sales Force tower. My guess since it is a “New” Class “A” office space SFT will fill up again with new tenets upgrading. $2 million you say!! The story goes that Starbucks does not make money in a city like San Francisco, they are there because it is good Brand marketing.

    • Depth Charge says:

      I have noticed a few Starbucks without drive-thrus closed down and have not reopened.

  14. gametv says:

    There are two trends that massively propelled housing prices. The first was the rise of two income households. That was a trend that effectively doubled incomes for many households and allowed households to spend more on homes. The second is low interest rates, which has had a huge impact on the prices that could be supported by a given monthly payment level. In California, the other major factor was Prop 13, which keeps the taxes on people who own a home from seeing large tax increases when the value of the home increases rapidly.

    It appears that both of those trends are now at an end or reversing.

    All of this price appreciation has allowed the housing industry to remain a highly inefficient industry.

    If we really want to solve the housing shortage there are easy solutions. 1) Stop the inflow of immigrants and send illegals home 2) create a new tax policy that penalizes owners of raw, undeveloped land to free up plenty of new buildable land 3) look at major reform of local building regulations and permitting processes.

    For example, in my home state of California, there are vast stretches of undeveloped land in the central california coastal areas that would be highly desireable. Why not allow this land to be developed, to take the strain off of prices in the Bay Area, LA and San Diego?

    Truly affordable housing is the core of reducing the cost of living and allowing people of all income brackets to enjoy a good quality of life. But our political class is much more interested in grabbing more control of your life, by increasing the cost of living, and having citizens be reliant on the government to provide for them, rather than creating efficiency in the private sector that will meet the demand with more housing.

    • Pea Sea says:

      When I think of all the reasons I can’t afford a house, I don’t think of artificial interest rate suppression, or irrational exuberance based on the expectation of eternal price rises, or private equity firms hoovering up the existing supply of SFRs to rent out; I think of some guy from Sinaloa who came up here to get a job washing dishes.

      • Phoenix_Ikki says:

        Hopefully you are being sarcastic..otherwise oh boy…if you are then a smiley face would help for my sarcasim detector to work properly.

      • David G LA says:

        And the restaurant owner who hired him. And the customers who want low prices. And both parties that turn a blind eye.

      • MM says:

        Yeah that one for a good laugh out of me. Also nothing about all the REITs and investment vehicles buying up inventory hand over fist? Think that might have a little more to do with it than our dishwasher friend.

    • Nathan Dumbrowski says:

      You started and had me hooked. Then you lost me. The only way the pricing can continue is if people or companies* continue to pay list or greater. As Wolf has said before about many other items including vehicles. If people are willing to keep paying list+ then the dealer will continue to sell them and make massive profits. Putting the price spike on immigrants, forcing new buildings or regulation to change permitting is not the solution. When people run out of the ability to support the loans the market will adjust. Mic drop

  15. Depth Charge says:

    “It is Hard to Resist the Dopamine of Collective Euphoria in the Housing Market”

    Not for me. I don’t even understand this mindset. Get excited to bid against anonymous offers in order to overpay for an “asset” that you then have to pay for monthly over the course of 30 years? I don’t get into this kind of stupid.

  16. Sierra7 says:

    If the dollar takes a significant hit globally then interest rate increases will become necessary to maintain foreign investment. Until that time “….it is different this time”! We have never had the FED take off the markets so much garbage and put into the FED freezer.
    We have never had those huge financial houses purchasing thousands of homes and then keeping part of the inventory off the markets… “metered housing”.
    This is more than a “single” issue problem. Wage suppression thru globalization increases the inability of so many Americans to “afford” housing. Too much foreign cash flooding the housing market has inflated the sales of homes either new or otherwise.
    Very close relative and husband prepped and placed their 3000 sq ft home in a US 152 bedroom community and placed for sale over a weekend; 5 family views and by Monday morning had 3 solid offers………This community (Which I will not name but those who are familiar with US 152 between Morgan Hill CA and US 99 to the East will know where.) That market is literally “on fire”!
    Last there are so many potential younger buyers who are now trying to take advantage of the “work from home” status and see an opportunity to move away from the major (in CA anyway) population centers and try the countrysides. They also know that once they “leave” they cannot go back to re-purchase housing.
    But bottom line to me:
    Any fractional solid interest rate rise and the housing market will be toast.

    • John Galt says:

      Yeah I know that area well. Too far away to do much more than retire, that is, if you work a tech job. Did a young family buy the house?

      • Sierra7 says:

        John Galt:
        That “area” has been famous for more than 20 years as a Greater Bay Area “bedroom community”; tons of commuters to the Bay Area jobs who were then priced out of the housing markets.
        Many now see the opportunity (if possible) to cash in on their equity increases before an inevitable crash. They will just move on hopefully to better lives instead of a daily 100-150 mile round trip commute.
        The saga of the “anecdotal” story is not quite finished yet. But having observed thru internet photos/videos all potential buyers have young children.

  17. Bill says:

    Having been thru the 70s housing to today (hopefully ), and I actually sold and bought a house today, one in ca and one in fl.. I can tell you there are two kinds of housing price increases. The first one is a credit driven, liar loan, sell into anyone with a pulse (2005). The second one is federal reserve notes flood the system and cause inflation, now That’s my opinion of which one we are in. And when bread becomes $1 again then houses will be 20k too, but I wouldn’t hold my breath. You could buy a brand new fabulous beach house in florida in 1972 for 40k$, today it’s at least 1.5m.

  18. SocalJim says:

    People have been calling the real estate market a bubble for decades while prices skyrocketed. They call that a wall of worry and that is a healthy thing.

    When people stop calling the real estate market a bubble, it will be time to worry a little.

    • RightNYer says:

      I’ve only really heard the real estate market called a bubble from say, 2004-2009, and from 2020 on.

      Not sure who you have heard calling it a bubble for decades.

      • Pea Sea says:

        People have been correctly calling this one a bubble since 2015 or 2016, just as people were correctly calling the first one a bubble in 2003. It just takes a while for that idea to break into the mainstream.

    • Wolf Richter says:


      “…been calling the real estate market a bubble for decades while prices skyrocketed.”

      Your memory is fading again. Prices plunged in 2006-2011. They have “skyrocketed” for 1 (one) decade, after the plunge. It’s skyrocket, plunge, skyrocket…

      • SocalJim says:

        Even in 2012 and 2013, people were calling to “fade the bounce” because prices were still way too high and had further to fall. It never ends.

        Fact is, even people that bought a decent location in 2006 managed to have a decent return on their money if the bought with 10% or 20% down … tax free.

        What happened in 2006 was a financial panic. The media fanned the flames of that panic for political purposes. Most defaulted homes had convential mortgages with 20% down. Those people got tricked by the media.

        The smart money recognized what had happened and loaded up on homes.

        • Depth Charge says:

          “Fact is, even people that bought a decent location in 2006 managed to have a decent return on their money if the bought with 10% or 20% down … tax free.”

          Lies. That money would have done much better in the stock market or any number of other investments. 2006 was a miserable time to buy, just like today.

        • SocalJim says:

          Since mid 2007, the SP500 before tax return is around 7.5%. Long term capital gains tax take that down to the mid 6% range.

          If you put 10% down on a home in a decent location in mid 2007, which was the worst time to buy, you will be right around that same number.

          Now, if you add prop13 to the mix, as well as your gain since your payment is much lower than today’s rent, the house wins.

      • Old School says:

        People have been rewarded pretty well for buying the dip. I think this could be where people goof up. In bed depression stock market lost 89%.

        A lot of people will put money to work when assets fall 25 -30%, but if we have a 1929 panic that is going to be way too early.

  19. J-Pow!!! says:

    Y’all need to chill. I will never let this bubble pop. On my honor.

    ~ Jay Powell

  20. Yort says:

    My land company operates in a few states, including the Austin Texas area. Austin Texas is the pinnacle of the FOMO dopamine euphoria that your article describes. I’m currently not buying in Austin and have sold most of what I did own, yet I still research property for potential investments. The pattern that I have noticed is houses with bigger lots that could not sell in 2018/2019 for say $600k, are now listed today and selling in 30-60 days for almost exactly twice as much, $1.2M. And any house that had issues selling on the larger lake Travis in Austin (super wealthy areas), having previously been taken off the market due to lack of interest in 2018/2019, are now listed AND selling for 3x the 2018/2019 price. So $600k now listing for $1.8M and actually selling! From what I can gather, and knowing from recent data showing investors are buying 15% (greater than housing bubble 2009 according to Bloomberg) of all properties…the FOMO in Austin is being driven by huge money investors and hedge funds. There are a lot of wealth coming from all across the globe buying also, as Austin has no majority race, and is one of the most diverse places in America. The FOMO really started around the time Elon Musk moved to Austin, along with Joe Rogan, etc. A lot of the hot money is coming from wealth fleeing California, and the housing ” CA Trickle Down” is raining hard in Austin right now. Austin is the pinnacle of Mania in the USA (Hard to find triple house values in 3 short years anywhere)…and my company is not participating as I can not see any ROI at this point, unless one believes we will have 1% 40-50 year mortgages and/or negative interest rates, which I do not think structurally possible due to being reserve currency…

    That said, I’m still investing in farmland in the midwest, although there are a lot of huge money investors buying right now, including billionaires like Bill Gates. Back in 2009 to 2012 my main farmland competitors were retires who lost their 5% CD rates and needed a better return by buying farmland. Today I have to compete with literally everyone who is starved for yield, and I’m seeing multi-million dollar offers that will take 40 or more years to pay off on farmland by some investors who must be clueless and in panic buy anything mode. Just like the housing bubble, the farmland bubble will burst too…someday, when our Psycho-Fed if forced to stop printing due to Stagflation.

    I would not get too excited about this current mania, as there will be a lot of great opportunity to buy some short sales and bank owned when it bursts, on all income producing assets. At some point, the Fed turns from monetary God to tool-less-tool so just be patient, and buy when the tribal investor herd is in “cortisol panic” sell mode…

    • Anthony A. says:

      Great post and insight, Yort. I’m in The Woodlands, TX and didn’t’ realize that Austin RE was “on fire” to that extent.

      I remember researching Midwest farmland as an investment back about 20 years ago and for some reason, just bought CD’s!

    • Phoneix_Ikki says:

      It’s funny and also insane to observe the insanity or perhaps new normal from the sideline or rather from someone that MO from the FOMO if this is the new normal. When market like Austin, Boise and Fresno can double or triple in matter of 2 years, maybe Death Valley will be the next HOT market both literally and figuratively.

    • ru82 says:

      “From what I can gather, and knowing from recent data showing investors are buying 15% (greater than housing bubble 2009 according to Bloomberg) of all properties”

      I read that too. But in the HB1 the investor class were hair dressors, janitors, strippers, etc.

      This time many of the investors are wall street investors who can raise money, bundle the loans into MBS and get the GSEs(FED) to guarantee the MBS. In a sense these MBS are a pretty safe investment even if the house prices crash and foreclosed as you will get your money back?

      So do some of these wall street buyers care if they overpay on a house? If we do have a crash they will just do the same thing but add more to their portfolio?

    • MCH says:

      Yikes, I think the appropriate word here is bat shit insane.

      The traffic situation in Austin when I was visiting there in early 2010s was already bad, can’t imagine how much worse it is now.

      I wonder how many locals are being squeezed out. How long before there is a wall around Austin proper to keep out all the riff raffs? An Austin only passport that no other Texans need apply, C19 vaccine mandatory…. heh heh

  21. Heinz says:

    Even if you factor in inflation these bubble houses of today still experiencing shockingly stiff price increases.

    For example, the house mentioned in article that sold for $650K in 2010:

    Since 2010, the purchasing power of dollar has declined considerably with a cumulative inflation rate of 22.5%. So the $650K in 2010 would be equivalent of only $796K in 2021.

    Theoretically, at least to me, that would approximate what it is roughly worth now adjusted for inflation (that is, if the house and neighborhood have not changed considerably– and yes, I know the wacky comps of today put values on a moonshot trajectory).

  22. Cash Guy says:

    Remind me again, what’s wrong with people who bought homes in 2005? As far as they’ve held onto it, they’re pretty well off right now. Better than hoarding that cash for 15 years.

    • Wolf Richter says:

      Cash Guy,

      OK, I’ll remind you again.

      They’re better off in some markets, worse off in others. Depends. For example, Las Vegas folks who bought in 2005 are still in the hole, as are folks in Chicago. In other markets, they had to wait till 2020 or 2021 — 15 years to get back to even or just a tad up, such as Miami, Phoenix and Washington DC.

      • TheFalcon says:

        In addition to what Wolf said, the Cash Guy hypo pits (1) Bought a house in ’05 vs. (2) Never bought and stayed in cash for 15 years. Why not pit the prospective’05 buyer against the buyer in ’09, ’10, ’11, ’12. What was gained by sitting out the mania and waiting? That’s the hypo.

        • Cash Guy says:

          And you aren’t factoring in living in your own house for 15 years, instead of renting a crappy condo, neither building up equity in the house for 15 years.

          There is no buyers on a strike. There’s only people who lost in the bidding war.

      • nodecentrepublicansleft says:

        I’ve looked at a lot of RE listing and see many people trying to sell now at price they paid in 2005-06 or in some cases even less in FL.

        If you buy in a bubble and don’t get foreclosed on, short sale, etc., you can only hold on til the next bubble and try to use the “find just one person dumber than me” strategy.

      • Swamp Creature says:

        Cash Guy,

        You forgot to include the affects of the 2017 Tax bill which made owning a home less advantageous from a tax point of view. I hear little talk of this anywhere. That’s because most people don;t do their own taxes and don;t know or care squat about it. The effect will make any correction much worse than in 2005/2006. All this debt and property taxes will not be deductable. So you will be left with a losing investment and not be able to write off the losses.

        My instructor in Hawaii once told the class. Avoid long term capital losses at all costs. Buyers of these overprices homes are setting themselves up for just that.

    • Angel says:

      Cash Guy,

      Not everyone is dumb enough to be involved in these fiasco’s. We certainly aren’t and have way to much experience to be duped into being involved. It has nothing to do with need, plan, inability to be involved or loosing in bidding wars. The RE market has been experiencing an insane vertical climb and that is always followed by a drop. Maybe not a crash but at least a correction. Given the climb and the data, a crash is far more likely. We are choosing to wait and that is a buyers strike.

  23. Engin-ear says:

    To all widely discussed reasons for the housing bubble I’d like to add a cultural one:

    Too much attention for the cash flow, too little concern for the net wealth.

  24. Alan Brandt says:

    The best bet is to make money when you buy low and sell high, its not sensible to try to buy high and try to sell higher. And certainly one can’t make any money buying high and selling lower.

    This is all you’ve got to know. The rest is just getting in control of your emotions.

    Last thing, the Fed can only print so much …. then its like pushing on a string.

    • Auldyin says:

      The only thing that could stop the Fed from printing is, if the press broke down. or the Govt cut off their paper and ink supply.

  25. sOL says:

    I’m saving for down payment, but 5% of $500k has turned to 5% of $800k overnight. All I read are articles about how low interest rates are causing these prices. I’m so pissed. When will the fed raise the damn rates? Housing is just completely out of control and it’s frustrating. Makes me want to quit, and settle for a cardboard sign on the roadside, as it feels that’s the endgame anyway.

    • Jeff says:

      If/when the Fed raises rates, you’re going to have instantly higher mortgage rates, but be waiting months/year(s) for prices to fall.

      • SOL says:

        I just wonder how long this goes for. I’ve been feeling it for years, but now the media is finally blasting it. Housing is unaffordable. The answer is NOT subsidized apartments. Maybe if our system was less gratuitous to investors and catered a little more to those looking for primary residence normal folks like myself could afford a place of my own. “Upper middle class” income levels can’t compete here in Bend.

        • Old School says:

          Are you doing thorough rent vs. buy analysis? Everything I read is now is the time to rent. In some ways it’s easier to manage your life if you rent.

          Homes generally cash flow worse than an apartment and it’s easy to get trapped in a house in a down market.

          Homes like stock market ought be bought knowing you might have to hold 10 years or so to make money.

  26. David Hall says:

    Years ago I was touring Costa Rica. I saw a community where expat American retirees lived along the Pacific Coast. They found cheap housing and domestic help, but their Medicare is no good in Costa Rica.

    • SOL says:

      I know people from Cali that can’t afford healthcare so the go to Central America for extremely discounted health services. I’m sure they aren’t missing Medicare too much.

      • JosefJoe says:

        Ha, Harry Dent even admitted that his doctor in Puerto Rico told him he needs to go back to the mainland because of the higher level of healthcare. They may not be missing Medicare until they actually need it.

      • Letsshareyourwealth. says:

        Good luck with that. Unless you know what you’re doing…’s a mine field.
        You’re lucky until you’re not. And then it’s over.
        For good.

  27. rich says:

    “Yes, if you own it for 80 years. The average homeownership period is something like 11 years. Which produces the exact problems outlined in the article.”

    Yesterday’s news. Baby boomers, having seen what Covid 19 did to assisted living unit dwellers, are aging in place. In other words, they are not selling their principal residences the way they used to. Then there are those pandemic driven house owners that refinanced at rates so low, that their PITI payments are less than what it would cost to rent. On top of that, the covid mentality sent house owners, in droves, to Lowe’s and Home Depot, to turn their properties into home recreation centers and botanical gardens. There ain’t moving anywhere. And, even if they wanted to, it’s too expensive to move up or down in this market.

  28. NJGeezer says:

    Hello Kara,
    Loved your article, chock-full of facts, wisdom, and great style. Welcome to WolfStreet from a longtime follower.
    Was that yak grazing peacefully?

  29. Franz Beckenbauer says:

    I guess it’s about time Mark Baum visited a stripper.

    • Phoneix_Ikki says:

      Him and Burry had been pretty quiet about the housing market even now, at least in public. Maybe they looked and this really isn’t a bubble? I sure hope that’s not the case but the for them not to sound the alarm bell especially after becoming famous from The Big short kind of makes me wonder.

  30. Letsshareyourwealth. says:

    The way I calculate it is 5% inflation on a 1M$ property is 50k/year.
    Not taxed, refinanceable. Compounding.
    That’s the equivalent of 90k income . Per year. Doing nothing.
    With either cash flow or as roof over head.
    If it’s financed the numbers go up over time.
    If inflation gets out of control , the price will simply follow. Mechanically.
    What’s not to like?

    • Wolf Richter says:

      “What’s not to like?”

      The moment home prices begin to decline, as they did in 2006-2011. Then you have 5% inflation compounded by house price declines, while your expenses continue to go up.

  31. Chris Witz says:

    What’s the population gain over that period…what’s the amount of new construction (houses) that has made it through the more and more arduous process…what is the amount of houses that have become rentals instead since then…what is the dollars purchasing power compared to 10 years ago…what is the differences of interest rates for affordability…what are the differences in demographics now that millennials are in prime buying age…

    Then we can start talking about bubble driven price differences

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